Thursday, July 14, 2011

Regulation: Its for your own good

Government regulation is a provocative topic. Many people seem to hold one of what they perceive to be only two possible opinions, either 'regulation is good' or 'regulation is bad'. Depending on which of these two opinions they may hold, the natural next step is 'more regulation would be good' or 'more regulation would be bad'.

Of course the real world is not quite as simple as our dualistic natures would like it to be. Things are messy and costs and benefits are not always easy to quantify. There is a lot of grey in between the black and white. Having said that, there is also a lot of what I would consider to be obviously silly and damaging government regulation. In particular, some of the state licensing of pretty benign professions is distressing.

For example, here is an article from USA today which reports on a law in Louisiana which requires florist to pass a test and get a license to arrange and sell flowers. Really? You need a license to arrange flowers? Or this article about the Arizona Board of Cosmetology requiring 'threaders' (people who use a piece of thread to remove eyebrow hair) to acquire an aesthetician license. To obtain the license requires schooling (which doesn't teach you how to thread) which can cost over $10,000. Or this article regarding Utah's requirement to obtain a cosmetology license in order to braid hair, a process which requires about 2000 hours of classwork at a cost of something between $9,000 to $19,000. Or this hilarious video from Reason TV regarding the licensing requirements of interior designers (at least watch the first 3 minutes for some comedy).

So is it really necessary for governments to institute licensing laws on these kind of low risk professions? Is the reason behind it really to promote public health and safety? Well I can't see the potential harm done by a florist arranging flowers. But I do see the harm to the economy this sort of regulation causes. First, it creates a barrier to entry making it more difficult to enter these professions, especially for low income workers. This suppresses competition allowing for those already in the industry to demand higher prices upon consumers. This is why trade organizations and professional associations often lobby for such regulation. Of course the obvious benefit to the states is the increased revenue they receive from licensing fees and penalties imposed upon those who are in violation of such laws.

1 comment:

  1. Well stated. Regulation impairs entry which is the engine of 'creative destruction' over time that drive innovation and higher standard of living. All the while regulation is said to be in the consumer's best interest...

    As you note, regs protect the franchises of incumbents, and they transfer power from the people to the State.